November 30, 2016

For the past seven months, CalBizLit, operating under the birth name Bruce Nye, has been regularly serving as a mediator in Northern California. With this peacemaking experience, and after a decades-long history of participating in mediations as an advocate, CBL is thinking it would be worthwhile to write about what makes mediation succeed and what makes it fail. So we’ll be providing some posts on that subject, starting with this one. Nye’s mediation website is at www.brucenyemediations.com.

Regular litigators, corporate counsel and insurers are well aware of the mediation process, and many of them have much experience in the mediation world. Once upon a time, we settled all of our cases by picking up the telephone and exchanging letters (remember letters?) Sometimes in litigation with represented parties, the parties ought to be able to reach settlement by sitting down together, talking on the telephone or both. But in many other instances, the mediation process – where a neutral works with both sides to help them reach a decision they control – is the way to go. So here are some initial thoughts on five things likely to make a mediation more successful.

August 26, 2016

Here comes Chapter Three in the law of arbitration and class actions in California.

Chapter One: In Discover Bank v. Superior Court (2005) 36 Cal. 4th 148, Cal Supremes rule that a consumer contract provision that waives the right to class action litigation as part of a binding arbitration agreement is unconscionable and void.

Chapter Two: In AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333, SCOTUS responds to Cal Supremes with "the heck you say," overruling Discover Bank as preempted by the Federal Arbitration Act. And now,

Sandquist was a case involving allegations of racial discrimination, harassment and retaliation. The Plaintiff had signed three binding arbitration agreements, all stating he agreed that "any claim or dispute or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum" would be "submitted to and determine[d] exclusively by binding arbitration."

The parties had a dispute about whether the agreement permitted or prohibited classwide arbitration. Cal Supremes held that, since this was a "claim or dispute" that would other wise be submitted to a court for decision, then as a matter of contract interpretation, the arbitrator would decide. "[W]ho decides is in the first instance a matter of agreement, with the parties' agreement subject to interpretation under state law." And since a majority of the Supremes found no contrary presumption under federal law and concluded that under California law, this language meant the decision went to the arbitrator, that's how the Court ruled.

This was a 4-3 decision, with Justices Kruger, Chin and Corrigan dissenting that under federal law, this was a decision for the court, not the arbitrator, as it was a "gateway question of arbitrability."

So there is a conflict between four justices' position that state law applies and the minority's view that federal law governs. This certainly seems like a likely case for a cert petition to the SCOTUS.

Short version: the binding arbitration agreement in the Form 553 CA ARB retail installment sale contract predominantly used by California automobile dealers in 2010 was valid and enforceable. But this is not just important for automobile dealers. The overall decision is important for all consumer goods businesses that want to use class action waiver and binding arbitration provisions. Because it confirms that they can.

April 09, 2015

For years now, companies, consumers and their lawyers have been waiting to see what would happen to the law involving contractual arbitration in Sanchez v. Valencia Holdings. The California Supreme Court has been sitting on this case for years: The Court of Appeal issued its ruling in November, 2011, invalidating a commonly used retail automotive installment sales contract arbitration clause on the grounds of unconscionability. The auto dealership defendant filed a petition for hearing in January, 2012, and the Supremes granted a hearing two months later. It looked as though the case was fully briefed in November, 2012, and then the Supremes invited supplemental briefing. That was all done (including lots of amicus briefing) in March of last year.

And now, just three years and three months after the petition for review was filed, the world is going to get its first hint about what the newly constituted California Supreme Court (three of seven have been seated on the court since the court granted a hearing in this case) thinks about binding arbitration clauses in consumer contracts. The Court has set this for hearing on May 5 at 9:00 a.m. in the Supreme Court's courthouse in San Francisco.

As CBL pointed out almost a year ago here, there are about 25 cases on hold at the Supreme Court pending the decision in Sanchez. And if Cal Supremes rule for the consumer, there's a pretty good chance this case will be headed for the US Supremes, and we can see what they think.

July 29, 2014

CBL is not just about Proposition 65 – it just sometimes seems that way. But the goal here is to provide out-of-state lawyers, general counsel, and other interested parties with some useful information about cutting edge issues facing litigants here in the Golden State. And today, we’re talking about the seemingly never-ending battle about contractual arbitration. There is a lot going on, resulting, no doubt, in an overly long post. Here goes.

OK, so if you haven’t been sleeping under a rock the past three years, you know this: In 2011, SCOTUS decided AT & T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Up until then, California Courts followed the “Discover Bank rule” (Discover Bank v. Superior Court (2005) 36 Cal.4th 148) to rule that in consumer contracts with binding arbitration clauses and class action waivers, the class action waiver rendered the arbitration clause unconscionable and therefore unenforceable. But in Concepcion, SCOTUS invalidated Discover Bank, ruling that it conflicted with the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2. More broadly, SCOTUS noted:

[The FAA] permits arbitration agreements to be declared unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." This saving clause permits agreements to arbitrate to be invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability," but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.

Since Concepcion was decided, there have been scores of arbitration decisions coming out of the California Courts of Appeal, and three subject to review by Cal Supremes. Two of the three Cal Supremes cases have been decided, as follows:

Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (“Sonic I”) and Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (“Sonic II”)arrived on the scene, respectively, before and after Concepcion. In Sonic I, before Concepcion, the Cal Supremes considered an employee/employer contract that (a) had binding arbitration provision and (b) waived the right to a “Berman hearing,” a California administrative hearing mechanism for wage claims. The Cal Supremes held that the waiver of the Berman hearing was unconscionable, that the employee had a right to the hearing, but that if the arbitration provision was valid, arbitration would supplant the post-Berman court processes.

And lawyers? He don't need no stinkin' lawyers either. He let's Brown start the jobbefore a contract is signed, and for some time after that, drafts of contracts pass back and forth, and by the time they are done, nobody seems to know exactly what is and what is not the contract.

Drazan / Frog Creek sue Brown. Brown cross complains, but also moves to compel arbitration under Brown's version of the contract. The trial court denied arbitration in that it couldn't find mutual assent for Brown's contract version, and the Court of Appeal affirmed. This was about six years ago.

So then Brown apparently pieces together Fox Creek's version of the contract and it has an arbitration provision also, and he moves to compel arbitration on that one. The trial court denied the motion, but the Court of Appeal reversed, ordering arbitration in 2007.

Now the case goes to arbitration. As we learn in the latest Court of Appeal case involving Mr. Drazan's Dream House,

Following 50 days of arbitration hearings, an American Arbitration Association panel issued a 65-page decision awarding Brown damages against Frog Creek of $1,905,902.90, plus $2,517,687.31 in attorney fees for the arbitration proceeding and $666,422.78 in costs. The arbitrators declined to rule on whether attorney fees and costs might be awarded for litigation activity before the arbitration. Frog Creek paid the arbitration award in February 2010, and the trial court entered judgment on it on April 7, 2010.

The contract -- whatever it is -- has a provision that the prevailing party in any dispute gets attorneys fees. So Brown moves for pre and post arbitration attorneys' fees of close to a million bucks. And Drazan goes, oh yeah? and moves for attorneys' fees of his own for defeating the first attorneys' fee petition. And the trial court gives Brown about $700K in attorneys' fees and Drazan about $125K.

To which the Court of Appeal says, "nope." Doesn't work that way. Under Civil Code section 1717, there is only one prevailing party, and that's the one who gets the most relief. Hmm, Vance Brown -- got about $2 million in damages. Jeffrey Drazan -- gets to delay arbitration for five or six years. i'm thinking it worked out better for Brown. And that's what the Court of Appeal thought too, as they (a) took away Drazan's $125K, and (b) told the trial court to give Brown fees for the first effort to take the case to arbitration, and for this appeal.

Anyway the moral of the story is: if you want someone who knows how to pick start-up stars like FrontBridge Technologies and Theravance, call Jeff Drazan. If you want someone to manage construction of your next $13 million home, call someone else, like Bob the Builder.

The name of this blog is not “CalArbNews.com.” But it sure seems that way sometimes. Because for the past year, many trial courts and Courts of Appeal have sought to answer this question: "Supremacy Clause? What Supremacy Clause? Do we really have to do what that darned SCOTUS says? Can't we come up with new ways to avoid arbitration? " And CBL has posted on the ongoing struggle here, here, here and here, among other places.

In honor of the one-year birthday of Concepcion, here are some of the most recent developments:

Thomas v. Westlake (March 23, 2012) ___ Cal.App.4th___(4th Dist. No. D058531): Plaintiff brought churning claims against four financial advisors and two insurance companies, who sought binding arbitration under agreement only the advisors had signed. The trial court denied a motion to compel arbitration under Code of Civil Procedure §1281.2, subd. (c), which provides that a court can deny a petition for arbitration when there is a risk of conflicting rulings as to parties and non-parties to the arbitration agreement. But the Court of Appeal reversed on the ground that everybody was a party to the arbitration contract, even the two who hadn't signed. Why? Because the plaintiff had alleged – as every plaintiff does in every case in California – that all of the defendants were agents of all the other defendants. As agents of signatories to the arbitration agreement, they were bound. And having alleged the agency in his complaint, the plaintiff was estopped to deny it.

. . . the employer could amend the contract in anticipation of a specific claim, altering the arbitration process to the employee's detriment and making it more likely the employer would prevail. The employer could also terminate the arbitration contract altogether, opting for a judicial forum if that seemed beneficial to the company.

February 29, 2012

What do bloggers do when they don't have time for real posts? Stitch together some little pieces of stuff. So here are CBL's pieces for February:

The California Courts of Appeal keep banging their heads against the wall when it comes to arbitration, finding arbitration agreements unconscionable and refusing to enforce them no matter what the US Supreme Court said in AT & T Mobility v. Concepcion (2011) ___ U.S. ___. You can see lots of examples in previous posts here, here and here.

An in the "Crystal Ball Actually Worked" department, we bring you Gonzales v. Southern California Gas S188956, where a Court of Appeal ruled that a gas company owed no duty in connection with its placement of a gas meter more than 11 feet from the curb in a 25 mph residential zone; the teenage driver decedent in the case took evasive action to avoid another car, jumped the 8 foot curb, smashed into the gas meter, caused a fire and died from her burns. In December of last year, CBL predicted the Cal Supremes would depublish the decision, meaning it would have no stare decisis effect. Sure enough, on February 22, the Supreme Court denied a hearing, and ordered that the decision not be published in official reports.

Agreements to arbitrate that fall within the scope andcoverage of the Federal Arbitration Act (Act), 9 U. S. C. §1 et seq., must be enforced in state and federal courts. State courts, then, “have a prominent role to play as enforcersof agreements to arbitrate.” Vaden v. Discover Bank, 556 U. S. 49, 59 (2009).

Well, here's a hint. In February, before Concepcion, the Cal Supremes decided Sonic Calbassas A., Inc. v. Moreno (2011) 51 Cal.4th 659. This was a wage and hour case, in which Cal Supremes held that an arbitration agreement did not bar an employee from using a statutory, pro-employee administrative procedure before the State Labor Commissioner to try to get a favorable ruling instead of going straight to contractual arbitration.

The employer filed a cert petition, to which the US Supreme Court tersely responded:

The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the Supreme Court of California for further consideration in light of AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011).